There are basically three types of credit cards:

Bank cards, issued by banks (examples, Visa, MasterCard and Discover Card)
Travel and entertainment (T&E) cards, such as American Express and Diners Club
House cards that are good only in one chain of stores (Sears is the biggest one of these, followed by the oil companies, phone companies and local department stores.) By the way, T&E cards and national house cards have the same terms and conditions wherever you apply.

You may also be familiar with what is known as an affinity card. These types of credit cards -- typically a MasterCard or Visa -- carries the logo of an organization in addition to the lender's emblem. Usually, these types of credit cards offer some benefit from using the card -- maybe frequent flyer miles or points toward merchandise. The organization solicits its members to get these types of credit cards, with the idea of keeping the group's name in front of the card holder. In addition to establishing brand loyalty, the organization receives some financial incentive from these types of credit cards; this is a fraction of the annual fee or the finance charge, or some small amount per transaction, or a combination of these, from the credit card company.

With so many types of credit cards available, there is no single card that is right for everyone. Basically, the right card for you is one that's accepted where you shop and charges you the smallest amount of money for the services you use. Almost any U.S. business or establishment that takes MasterCard also takes Visa, and vice versa. (If you only spend money in the U.S., you probably don't need both.)

Choosing From the Various Types of Credit Cards

Now we come to core of the selection process -- which plan to choose from the many types of credit cards on the market. The costs and terms of your credit card plan can make a difference to how much you pay for the privilege of borrowing (which is what you're doing when you use a credit card). In the disclosure form from the credit card issuer (usually a small, fine print brochure), look closely at the credit terms we discussed earlier. Don't forget about specifics like late charges (usually $15-$30) and over-the-limit fees (around $20-$25). Consider these factors along with how you pay your bills each month, no matter which types of credit cards you are considering. For example, if you always pay your monthly bill in full, the best types of credit cards for you are ones that have no annual fee and offer a grace period for paying your bill before finance charges kick in. If you don¹t always pay off your balance each month (and 7 out of 10 American credit card holders fall into this category), be sure to look at the periodic rate that will be used to calculate the finance charge. Different types of credit cards offer different rates.

Variable vs. Fixed Rate Types of Credit Cards

Credit card companies that issue variable rate types of credit cards use indexes such as the prime rate, the one-, three- or six-month Treasury Bill rate, and the federal funds or Federal Reserve discount rate. (Most of these indexes can be found in the money or business sections of major newspapers.)

Once the interest rate corresponding to the index has been identified, the credit card issuer then adds a number of percentage points -- called the margin -- to this index rate to come up with the rate the consumer will be charged on various types of credit cards. In some cases, the issuer might choose to use another formula to determine the rate to be charged. These issuers multiply the index or index plus the margin by another number, the "multiple," to calculate the rate for various types of credit cards.

Take a good look at fixed rate plans. They may be a couple of percentage points higher than the variable rate types of credit cards, but you will have the advantage of knowing what your interest rate will be. Variable rates are just that -- they change -- and can increase (usually the case) or decrease your finance charges you pay on these types of credit cards.

If your rate is fixed, the Truth in Lending Act requires the lender to provide at least 15 days notice before raising the rate on these types of credit cards. In some states, there are laws that require more notice.

Some financial analysts argue that because a fixed rate can be increased with only a 15-day notice, these types of credit cards are not that different from a variable rate plan, which is subject to change at any time. They advise looking closely at both types of credit cards. If you do choose from among the variable rate types of credit cards, check to see if there are caps on how high or how low your interest rate can go. If the lowest variable rate possible on your cards, for example, is 15.9 percent and rates are trending downward, you may want to switch these types of credit cards to another lender.)

Few experts will argue with the fact that a low interest rate is a good thing. To illustrate the importance of a low interest rate, let's look at a simple example of how much your annual savings might be if you switch to one of the lower interest rate types of credit cards that have no annual fee. In this case, the average monthly balance carried forward equals $2,500, which is about the national average for consumers with credit card debt. Total annual savings in this example -- $120.

Now that you know more about the types of credit cards, you can find a card that is suited to your needs. Good luck!